Several Federal Agencies Issue Revised Proposed Rule Prohibiting Incentive Compensation for Excessive Risk Taking by Covered Financial Institutions
Several federal agencies, including the SEC, issued a joint revised proposed rule to implement Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Proposed Rule”), which prohibits incentive-based compensation that encourages inappropriate risks by certain financial institutions. The Proposed Rule divides covered institutions into three tiers based on their average total consolidated assets. Although many aspects of the Proposed Rule are similar to the rule proposed in 2011, there are a few key differences. These differences include a new definition of incentive-based compensation that would not be considered to appropriately balance risk and rewards, a new recordkeeping requirement regarding the structure of incentive-based compensation, new requirements for deferral of incentive-based compensation, downward adjustments and clawbacks, and requirements for the structure of the institution’s compensation committee. The Proposed Rule is available here.
The Payment Card Industry Security Standards Council recently released revised data security standards for payment cards, which include debit cards issued by vendors in conjunction with flexible spending accounts, health reimbursement arrangements, and health savings accounts. These revised standards update the Payment Card Industry Data Security Standard (“PCI DSS”) to version 3.2 and contain a variety of enhancements to protect against security threats, including revised system penetration testing requirements, enhanced policies and procedures for detecting failures, and stricter authentication protocols. The PCI DSS responsibilities fall on the card issuers, vendor service providers, merchants, etc., not on an employer which merely sponsors or facilitates a spending account benefit that utilizes debit cards. PCI DSS version 3.2 will be viewed as a “best practice” until January 31, 2018. Beginning February 1, 2018, version 3.2’s standards become mandatory for the industry. Employers sponsoring or facilitating spending account benefits utilizing debit cards should update… Continue Reading
On May 16, 2016, the EEOC issued two sets of final regulations regarding the compliance of employer-sponsored wellness programs with the Americans with Disabilities Act (the “ADA”) and the Genetic Information Nondiscrimination Act of 2008 (“GINA”). The final regulations were generally consistent with the ADA and GINA wellness program proposed rules issued by the EEOC during 2015, which set forth limits on the inducements employers may offer to employees for participation in wellness programs that solicit health information from participants. Consistent with the proposed regulations, the final regulations also include confidentiality and notice requirements for wellness programs subject to the ADA and GINA. The effective date for compliance with the wellness program inducement limits and new ADA notice requirements is the first day of the plan year beginning on or after January 1, 2017. The final regulations under the ADA are available here. The final regulations under GINA are available here.
Section 1557 of the Affordable Care Act (the “ACA”) prohibits discrimination in certain health care programs and activities on the basis of race, color, national origin, sex, age, or disability. HHS recently issued final rules under Section 1557, which specify gender identity discrimination and sexual stereotyping as forms of sex discrimination. However, these rules only apply to “covered entities” as defined for this purpose. The term “covered entity” includes health care systems or providers that accept Medicare Part A or Medicaid and insurance carriers and/or third party administrators (“TPA”) that receive federal funding through participation in the public insurance marketplace, which will also have to comply with respect to benefits offered to their own employees. While HHS interprets the rule to impact an insurance carrier’s and/or a TPA’s entire book of business, a TPA is not responsible for discrimination due to a plan sponsor’s self-insured plan design decisions beyond the… Continue Reading
Treasury Issues Regulations Clarifying that Partners Providing Services to a Disregarded Entity Owned by the Partnership are Treated as Self-Employed
The U.S. Treasury Department recently issued proposed and temporary regulations clarifying that partners of a partnership providing services to a disregarded entity that is owned by the partnership are treated as self-employed, and not employees of the disregarded entity. Under current treasury regulations, a disregarded entity may be treated as a corporation for employment tax and employee benefit plan purposes, provided that the rule doesn’t apply to the single owner that operates the disregarded entity as a sole proprietorship. In response to certain practitioners interpreting the regulation to permit partners to be treated as employees of the disregarded entity and allowing such partners to participate in a disregarded entity’s tax-favored employee benefit plans, the Treasury Department issued these regulations to clarify that if a partnership is the owner of a disregarded entity, the partners of such partnership are subject to the same self-employment tax rules as if they directly owned… Continue Reading
Israeli District Court: Costs of Equity-Based Compensation Should Be Included in Cost-Plus Transfer Pricing Arrangements
In this case, an Israeli subsidiary provided certain research and development services to its U.S.-based parent under a transfer pricing agreement that established the subsidiary’s income as an amount equal to its costs plus a 7 percent margin. Employees of the subsidiary received various stock awards under the “capital gains course” of Section 102 of the Israeli Tax Ordinance (“Section 102”). Section 102 generally applies to Israeli resident companies and non-Israeli companies that have a permanent research and development center in Israel. The subsidiary did not include accounting expenses for employee stock awards in its cost base and retroactively amended the transfer pricing agreement with its parent to reflect this treatment. The Israeli Tax Authority (“ITA”) disagreed with the exclusion of these expenses. The Tel Aviv District Court agreed with the ITA, ruling that (i) the accounting expenses for employee equity-based compensation should be included in the subsidiary’s cost base… Continue Reading
More than three-dozen North American oilfield service companies commenced Chapter 7, Chapter 11 and Canadian bankruptcy cases in 2015 involving over $5.3 billion in cumulative secured and unsecured debt. As of April 29, 2016, 22 oilfield service companies have filed bankruptcy so far this year, totaling over $3.9 billion in cumulative debt. Stated differently, the industry has seen bankruptcies with almost 75% of the total 2015 debt in the first four months of 2016 alone. Industry and economic indicators suggest oilfield service bankruptcy filings will only increase during the remainder of 2016. With the slump in commodity prices persisting, the lawyers of Haynes and Boone’s Oilfield Services and Bankruptcy Practice Groups are closely following recent industry developments. The latest Oilfield Services Bankruptcy Tracker Report is available here. – full link is http://www.haynesboone.com/~/media/files/attorney%20publications/2016/ofstracker.ashx
The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 requires certain civil penalties to be adjusted for inflation. PBGC released an interim final rule adjusting the maximum civil penalties provided for in Sections 4071 and 4302 of ERISA regarding failure to provide certain plan notices or other material information. The new maximum amounts are: $2,063 per day for Section 4071 penalties (up from $1,000 per day) and $275 per day for Section 4302 penalties (up from $100 per day). The adjusted amounts are effective August 1, 2016. The interim final rule is available here.
Seventh Circuit Denies Refund of Contributions to Multiemployer Plan for Mistakenly Covered Participant and Denies Arbitration Under the PBGC’s Default Rules for Withdrawal Liability
In Central States, Southeast and Southwest Areas Pension Fund v. Bulk Transport Corp., the U.S. Court of Appeals for the Seventh Circuit held that the employer could not seek a refund of contributions made to a multiemployer plan on behalf of an employee that the employer mistakenly believed was covered under the collective bargaining agreement because the employer had certified that the employee was eligible to participate in the plan and later explicitly covered the employee by name in subsequent collective bargaining agreements, and further, the pension fund had no duty to inquire as to the employee’s eligibility. The court also held that, in seeking arbitration for a dispute of withdrawal liability, the employer and the pension fund must use the American Arbitration Association’s (“AAA”) Multi-Employer Pension Plan Arbitration Rules that were approved by the PBGC instead of the PBGC’s default rules, notwithstanding the fact that the AAA had significantly… Continue Reading
Fifth Circuit Addresses ERISA Fiduciary Duty of Appointing Fiduciary to Monitor an Appointed Fiduciary
The U.S. Court of Appeals for the Fifth Circuit, which includes Texas, upheld a district court judgment that the former owner of a privately-held company engaged in a prohibited transaction and breached his fiduciary duties of loyalty and prudence when selling shares of company stock to his former company’s leveraged employee stock ownership plan (“ESOP”) at prices in excess of the stock’s fair market value. Specifically, the court found that the owner influenced the outcome of the appraiser’s valuation of the stock to achieve a higher stock price, which resulted in the ESOP overpaying for the stock. The Fifth Circuit disagreed with the district court’s holding that the owner, who was also a trustee of the ESOP, breached his fiduciary duty to monitor the other two plan trustees whom he had appointed and whom he knew had breached their duties of loyalty and care. Perez v. Bruister, No. 14-60811 (5th… Continue Reading